Understanding the IR35 Off Payroll Working Rules
The off-payroll working rules are designed by HRMC in order to identify the employment status of an individual as an employee or a self-employed person. These rules are applicable when a worker provides services to their clients through an intermediary. An intermediary could be –
- An individual
- Partnership
- Worker’s own personal partners service company
- A managed service company
These rules ensure that a person who is a worker and also providing services to their client as per direct contractual agreement will be treated as an employee and is entitled to pay the same tax & national insurance contribution as paid by other employees. These rules are also known as IR35 rules. These rules are applicable on the following –
- A worker providing the services to clients through their intermediary
- An agency providing worker’s services to clients through their intermediary
- A client receiving services from a worker through their intermediary.
If the above mentioned rules apply, you need to pay tax and national insurance contribution to HMRC from the fees you received from the client on work completion.
When the Off-Payroll working rules apply?
These rules are applicable when a worker provides services to a client through their intermediary but would be treated as an employee if directly contracted by the client. As per HMRC, with the use of CEST tool - you are able to know whether these rules are applicable on you or not.
| Off Payroll Rules before 6th April 2020 | Off Payroll Rules after 6th April 2020 |
| As per current off-payroll rules, a client of a worker in a public sector will be considered as an authority to decide the employment status of a worker. | As per changes in off-payroll rules w.e.f 6th April 2020, it is the responsibility of all public sector authorities, medium and large sized private sector clients to decide your employment status. |
| As per the current off payroll rules, For any worker having client in private sector, worker’s own intermediary will be considered as an authority to decide the employment status of a worker. It also includes third sector organisation. For ex – Charities. | In case you are a worker and providing services to a small client in the private sector, it is the responsibility of worker’s intermediary to decide the employment status of a worker. |
IR35 Off Payroll Review Launched
As you know, IR35 off-payroll working rules are going to implement from April 2020 in the private sector. It was a possibility that off payroll working rules might get change before April 2020 or its implementation may get delayed further but something different has happened yesterday.
Yesterday, Government announced review of IR35 Off-payroll working rules in order to implement the reforms smoothly and successfully in the private sector and given an indication that there is no postponement of rules and the same will be implemented from April 2020.
Purpose of Launching IR35 Off Payroll Review
As per statement released by Treasury -
- The main objective of launching review of IR35 off-payroll working rules is to gather evidences from all effected individuals (freelancers, contractors) and businesses (medium and large sized businesses) in order to decide whether any further steps should be taken in implementation of IR35 rules or not.
- Deciding whether any additional support is needed or not, so that it will not impact the self-employed person who is outside the scope of IR35 rules.
- CEST tool launched by HMRC has proven to be a bad experience for businesses in identifying the employment status of an individual. Hence, it has also been said by the government that they will evaluate the CEST tool as well as ask public sector bodies about their experiences they had after implementation of off-payroll rules in the public sector since 2017.
Hence, it is necessary for every individual to start preparations for the off-payroll changes taking effect from April 2020 and HMRC should educate businesses about the off-payroll rules in order to avoid blanket assessments as what we have seen in public sector before.
Agencies & contractors must contact MP’s of their area and tell them the devastating effects which implementation of these off-payroll rules may cause them.
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